Brazil Is Still the Country of the Future

Tyler Cowen – Bloomberg, 08/11/2016

Brazil, it is often and not quite fairly said, is the country of the future and always will be. As the Olympics focuses global attention on the country, it’s worth exploring the various ways in which this maxim is — and may not be — true.

The puzzle with Brazil is neither its successes nor its failures, but rather the combination of the two. The country has such a dynamic feel, and in the postwar era it saw many years of double-digit economic growth. The Economist featured the country on its cover in 2009 as the next miracle take-off, and in 2012 Germany’s Der Spiegel published a long article titled “How Good Governance Made Brazil a Model Nation.”

Yet Brazil never caught up to the developed world: Its gross domestic product per capita falls about 4 to 7 times short of the U.S. — about where it was more than a century ago. It is now experiencing one of the most severe depressions of any country in modern times. The president, Dilma Rousseff, is in the midst of an impeachment process. The combination of corrupt and violent police, muggings of athletes, polluted water and inadequate facilities have led many to wonder whether Brazil can pull of the Olympics without major embarrassment.

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Having already failed, the Rio Olympics may now succeed

Paulo Sotero – The Financial Times, 07/25/2016

Desfile olímpico de alunos da rede municipal do Rio

A um ano dos Jogos Rio 2016, alunos e professores da rede municipal, participam de desfile olímpico no Parque Madureira, na zona norte da cidade (Tânia Rêgo/Agência Brasil)

Judging by media reports and official statements, this year’s Summer Olympics in Rio de Janeiro were a flop well before the August 5 opening ceremony. But if history is any guide, the games stand a reasonable chance of being seeing as satisfactory by the time the estimated 10,000 participating athletes return home. Whether it’s the Olympics in Athens, Beijing, London and Sochi or the soccer World Cup in South Africa and Brazil, a disaster-to-success reversal has been the standard narrative of all recent major global sporting events.

The Rio Olympics, the first to take place in South America, may yet turn out to be a special case. With the threat of a terrorist attack seen as a real possibility after the July 21 arrests of 10 Brazilians identified by local authorities as sympathisers of the so-called Islamic State, the only catastrophes that can be discarded are hurricanes, earthquakes and tsunamis, which are rare on the Atlantic coast of South America.

Most forms of man-made disaster, including pollution, pestilence, engineering failure, crime, massive corruption, recession and political meltdown have hit Rio and Brazil as city and country raced against the clock to make final preparation for the games. Ample and mostly fair coverage of bad news by the local press was, as expected, amplified by the international media.

The foul state of the waters in parts of Guanabara Bay and Lagoa Rodrigo de Freitas, where some of the nautical events are scheduled to take place, and the Zika virus epidemic, have led doctors from around the world to call for a suspension of the games. A few renowned Olympians said they would stay away. In June, Rio’s acting governor declared a state of “public calamity” in order to free $800m in federal funds urgently needed to complete public works connecting Olympic venues, finish construction of housing for athletes and pay late salaries to public servants, including policemen. To dramatise the situation, some police officers staged a demonstration at Rio’s international airport welcoming visitors to “hell”.

Although violence in general and violence against women have trended down in recent years, the group rape of a young woman and the invasion of a public hospital by a narco gang to free a traffic boss have kept crime in the headlines. In mid-June, Rio’s mayor, Eduardo Paes, said in an interview with CNN that Rio’s police, controlled by the state government and not by him, were doing a “terrible” job. A few days later he said, quite accurately, that “the Rio Olympics are a missed opportunity” for Brazil to showcase itself on the global stage as a rising power.

That is what former president Luiz Inácio Lula da Silva had in mind when he travelled to London in 2009 to lobby the International Olympic Committee to award this year’s games to Brazil. Today Lula is a diminished if not disgraced politician. He faces two federal criminal investigations and is manoeuvring to stay out of jail. In mid July, the former president was indicted by the attorney general for attempting to obstruct a federal investigation on a massive corruption scandal involving state oil giant Petrobras, which is headquartered in Rio. Exposed in 2014, the Petrobras case has added fuel to a governance crisis that has crippled Brazil’s public finances, compromised investors and public confidence in the economy and thrown the country into its worst recession in a century. Seen as the economic disaster’s architect, Lula’s successor and protégée, Dilma Rousseff, was suspended in April by the House of Representatives and will likely be removed from office at the conclusion of her impeachment trial in the Senate in the weeks following the Olympics closing ceremony.

The scandal led to the arrests of more than a hundred businesses executives, senior bureaucrats and shady political operatives. A slew of former and current elected officials are under investigation or have been indicted, among them a former speaker of the House of Representatives, the current president of the Senate, two dozen members of Congress and ministers appointed by both Rousseff and her former ally and vice-president, Michel Temer, who took office as acting president in May pending the resolution of the impeachment process.

Against this depressing backdrop, Brazilians are not exactly looking forward to hosting the world’s greatest sporting festival. Support for the games has dropped from 92 per cent in 2009 to less than half of that today. Among cariocas, as the 6.5m inhabitants of Rio are known, barely 40 per cent say they are interested in the games. Tens of thousands of Brazilians from other parts of the country who had planned to attend have opted out because of the economic crisis, which has left more than 11m people jobless. Likewise, the number of foreign visitors will probably be much lower than the half a million that were once expected in Rio during the Olympics.

Ironically, such abysmally low expectations may help create a positive perception once the games get under way. With a security apparatus of 85,000 in place, Rio will probably be one of the safest places on the planet in August – in the absence of a terrorist attack. The myriad problems facing Brazilians will not prevent them from welcoming visitors and making sure they enjoy the music, the dance, the beaches and the nightlife Rio offers in abundance. With the first signs of investors’ confidence on the horizon and economists predicting a return to economic growth in 2017, a disaster-free Olympics could even help the country restore some of its lost self-esteem and project virtues the Brazilian people and some of their institutions have displayed in the face of unprecedented crisis and chaos.

Such efforts could start with the show that will precede the opening ceremony and the parade of athletes marching behind their countries’ flags before the lighting of the Olympic torch. Stealing a page from the London Olympics, which opened with a memorable display on the UK’s challenges and achievements, producers could add a scene featuring cars of the Federal Police and actors representing federal law enforcement officers, prosecutors and judges to symbolise the country’s ongoing offensive against systemic corruption and the impunity of criminals in high places, which is supported by nine out of ten Brazilians. The scene would certainly be well received.

So should peaceful rallies that both sympathisers and critics of Rousseff say they will organise to amplify their views before international audiences watching the Olympics. Compared with the scenes of hatred and violence from around the world seen daily on television, the civil manner in which Brazilians have been demonstrating their frustrations and dealing with their differences has been quite refreshing. It should be celebrated along with the Olympians who will gather in Rio to, once again, show humanity’s better face.

Paulo Sotero is director of the Brazil Institute at the Woodrow Wilson International Center of Scholars in Washington, DC.

Wall Street Has Moved On From Brazil’s Political Crisis

Kenneth Rapoza – Forbes, 07/11/2016

Wall Street is looking forward to the day when Brazil’s economy turns the corner. They believe it happens in 2017. Wheels are in motion.

What is clear is that U.S. investors have moved on from the political crisis, but have not completely ruled out a return of ousted leader Dilma Rousseff. Nor are they expecting miracles from her vice president Michel Temer, who will be the official president once the impeachment is settled later next month.

The first catalyst for change was the December 2015 approval of the impeachment process against Dilma in the lower house. Once that date was settled, for mid-April, markets rallied. Regardless of the political drama behind the impeachment, investors see Dilma’s ouster as the trigger. That first shot was fired in December. The next one will be in August.

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Latest Brazil Study On Impeachment Unlikely To Save Dilma

Kenneth Rapoza – Forbes, 06/27/2016

A technical report into whether or not Dilma cooked the books on fiscal accounts in 2014 turned out in her favor. Come to find out, she did not push forward accounts, but still — according to one Brazil economist I spoke with — did commit crimes of fiscal responsibility. That will still be for the Senate to decide when suspended president Dilma Rousseff goes to trial at some point in late July, early August.

What appears clear for Brazil watchers is that the back and forth of corruption allegations and now this latest study suggests that if the country was a chicken, it would be running around with its head cut off. It’s not very appealing except for the hungriest of vultures looking for a cheap meal.

Hedge funds that like regime change politics are watching the political play-by-play closely. The latest study might have moved the needle against impeachment, though 60 senators are still expected to vote for her ouster.

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How to Get Brazil (And Latin America) Completely Wrong

Brian Winter – Americas Quarterly, 06/22/2016

It’s been yet another rough week for Brazil’s international image, with an Olympic mascot shot dead in an absurd accident and another national political figure dragged into scandal. But the biggest blow of all came from Declan Ryan, co-founder of the Irish budget airline Ryanair, who told an Argentine newspaper that he was considering expansion into every South American country “except for Brazil, where there is lots of corruption.”

This is precisely the wrong lesson to draw from Brazil’s struggles – akin to believing that the house that gets the most exhaustive inspection must also be the most rotten one on the block. It’s telling that Ryan made his comments (which became huge news in Brazil) while announcing an expansion into Argentina, where the corruption under 12 years of Kirchner rule is only now coming to light. Just last week, a former Argentine secretary of public works was arrested while trying to hide $9 million in cash in a monastery. Ryan preferred tolaugh that story off.

As regular AQ readers know, the negative headlines about Brazil result from a positive process – the independent prosecutors who have uncovered evidence of systemic graft and fraud, and sent some of the country’s most powerful people to jail. This does not mean Brazil is South America’s most corrupt country – it may mean, instead, that it has its healthiest (or most active) legal system. But the mistake Ryan made is surprisingly common, and it provides a golden opportunity for investors who are savvy enough to see the truth.

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Populist policies let Brazil’s tomorrow slip away

Eduardo Porter – The New York Times, 05/03/3016

Not too long ago, Brazilians might have been counted as the most optimistic people in the world. From 2008 to 2013, as the United States and Europe grappled with the aftermath of a crisis wrought by blind trust in unfettered finance, Brazil’s income per person grew 12 percent after inflation. Wages soared. The poverty rate plummeted. Even income inequality narrowed.

Brazil remained only a high-middle-income country, in the technospeak of the International Monetary Fund. But for the first time in forever, the eternal “country of tomorrow,” as Brazilians often ruefully described their nation, saw itself instead as a rampant member of the emerging cohort ofBRICS (Brazil, Russia, India, China and South Africa) — maybe even closer than China to making the jump into the ranks of the world’s richest nations.

And then it didn’t happen.

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Is Brazil giving up on growth?

Kenneth Rapoza – Forbes, 04/25/2016

Inflation is down nearly 100 basis points from a few months ago, but the Central Bank of Brazil has no intention of lowering interest rates. Investors should take this coming Wednesday’s meeting as a cue whether or not there is a growth strategy anywhere in Brasilia.

Nomura Securities said that they are forecasting the Bank to keep rates at 14.25% even though inflation is coming down. Brazil’s rolling 12-month inflation was as high as 10.7% in January. It’s currently 9.4%. Nomura has close ties to Brazil’s central bank and is good gauge of which way the wind is blowing on the monetary policy committee.

Brazil’s economy, expected to contract by around 3.5% again this year, is facing a massive political crisis. It would be good if the central bank could be more independent and cut rates to boost growth. On the other hand, sentiment among Brazil’s business class is so burned out with the twin crises of politics and economics that it is going to take more than a rate hike to improve things.

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Five reasons why the world needs Brazil to pull through its political crisis

Nick Miroff – The Washington Post, 04/22/2016

If you caught a glimpse of last weekend’s impeachment proceedings against President Dilma Rousseff, you may have noticed that Brazil is going bonkers right now. There was spitting, shoving and confetti-shooting on the floor of parliament, which at times looked more like a Roman coliseum than a legislative chamber.

Rousseff lost the vote badly, setting up what is likely to be a protracted, bitter political battle to unseat her. She will be forced to step down temporarily if Brazil’s senate votes as soon as mid-May to go forward with the impeachment process, with hearings that could drag on for six months.

The country of 200 million people, by far the largest in Latin America, is increasingly polarized and entirely consumed with its political crisis. By no means is Brazil on the verge of collapse, but here are some reasons why the turmoil isn’t so good for the rest of us.

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How Brazil, the darling of the developing world, came undone

Nick Miroff and Dom Phillips – Washington Post,  04/15/2016

It was called the “Brazil model,” or simply “the Lula model,” back when this country’s economy was roaring and its president, Luiz Inácio Lula da Silva, was a superstar of the developing world.

By balancing support for big business with big social-welfare programs, the union boss turned statesman presided over an era of growth that lifted tens of millions of Brazilians out of poverty. Lula’s presidency cut a new template for a Latin American left that had long insisted class struggle and revolution were the only road to fairness. The coronation came when Brazil was chosen to host the 2016 Summer Olympics, confirming its rise as a global power.

Now Brazil is limping to the Games. Its economy is facing its worst crisis since the 1930s. A Zika virus epidemic rages. And on Sunday, lawmakers will vote on whether to impeach President Dilma Rousseff, Lula’s hand-picked successor. Impeachment appears increasingly likely.

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